More Shades of Irrational Exuberance

The signs of irrational exuberance in China’s stock markets don’t seem to be going away. Take the Financial Times report (here, behind a paywall) that people are borrowing against their homes to buy stock. My colleague Kathleen Kingsbury had a piece out Friday that included comments from a small-scale punter in Beijing who doesn’t see how the market can go down.

To see how the markets can go down, one needs only to take a look at last week. The Shanghai Composite Index had its biggest drop since January 2002, falling by 4% Friday to end the week down 7.3%. The big question is whether this decline will lead to more measured growth, or is a prelude of bigger drops to come. One thing seems certain, the jitters aren’t going to ease any time soon.